Severance Pay
What is severance pay?
Severance pay is compensation given to an employee when their employment ends, usually calculated based on how long they've been with the company. In the US, severance is often discretionary, something companies offer as goodwill or to secure a signed release, rather than something the law requires.
That assumption doesn't travel well. In a lot of countries, including India, severance-style payments aren't optional extras. They're a legal entitlement built into how termination works.
How this actually plays out in India
India's framework includes retrenchment compensation for eligible employees, typically calculated as fifteen days of average pay for every completed year of service, on top of notice pay and gratuity for employees who've completed five years or more. A US company used to treating severance as a discretionary goodwill gesture can be genuinely surprised the first time they end an Indian employee's contract and discover these payments are mandatory, not optional.
Get the calculation wrong, or skip it entirely assuming it works like a US at-will termination, and the company can face a labor dispute that costs far more in legal fees and back pay than the severance would have in the first place.
Why this matters before you hire, not after
The time to understand severance obligations in India is before you make an offer, not after you're trying to end someone's employment. Budgeting for severance from day one, factoring it into your total cost of employment rather than treating it as a surprise line item later, avoids the scramble that catches a lot of first-time India employers off guard.
kaam.work calculates these obligations correctly from the start of employment and handles the actual termination process in compliance with Indian labor law, so severance never becomes the thing that derails an otherwise clean offboarding.
Frequently asked questions
- Is severance pay legally required in India?
- For eligible employees under retrenchment provisions, yes. It's not simply a matter of company discretion the way it often is in the US.
- How is severance pay calculated in India?
- Retrenchment compensation is generally fifteen days of average pay per completed year of service, separate from notice pay and any gratuity owed for longer-tenured employees.
- Does severance pay apply if I hire through an Employer of Record?
- Yes, statutory severance obligations still apply to employees hired through an EOR, since they remain genuine employees under Indian law. The EOR calculates and manages this correctly on your behalf.
- What happens if a company skips severance pay in India?
- The employee can pursue the unpaid amount through a labor dispute, which typically costs the company more in legal expense and reputational risk than paying it correctly would have
